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UK Resident Non-Domiciliaries –Loans Secured on Foreign Income/Gains (Update For Pre 4th August 2014 Loans)

It would appear that the UK tax authorities have performed a partial U-turn on pre 4th August 2014 loans taken out by UK resident non-domiciled individuals who are taxed on the remittance basis.

As reported in our earlier article, HM Revenue & Customs (HMRC) had initially announced that:-

  • Where proceeds of loans taken out by UK resident non-domiciled individuals, and secured on  foreign income and gains, were used, enjoyed in or remitted to the UK on or after 4th August 2014, such remittances would be treated as taxable income.
  • However, where such loans were taken out and used, enjoyed in or remitted to the UK before 4th August 2014, HMRC would not seek to treat the remittances as taxable provided that the individual informed HMRC of the existence of the loan arrangements by 31st December 2015 and, either:-

–       repaid the loan using ‘clean capital’ by 5th April 2016; or

–       replaced the collateral for the loan with ‘clean capital’ by 5th April 2016.

Relaxation for Pre 4th August 2014 Loans

For some individuals it may have proved impossible to unwind or restructure arrangements which already existed at 4th August 2014. Following discussions with representative bodies, HMRC have now relaxed their stance with regard to loans in existence on that date, such that it will no longer be necessary to repay the loan or replace the foreign income/gains used as collateral with ‘clean capital’ by 5th April 2016.

There seems to be no mention in the HMRC announcement of whether or not HMRC still need to be informed of such pre 4th August 2014 arrangements, so for now one may assume that HMRC will wish to collate such information for future usage!

Loan arrangements entered into on or after 4th August 2014 do not, of course, benefit from this relaxation by HMRC.   Therefore great care should be taken with arrangements that existed on that date, to ensure that any refinancing or alteration of the terms do not result in them being treated as post 4th August 2014 loans.

It may be obvious, but any proceeds of pre 4th August 2014 loan arrangements as described above, which are still held outside the UK, should not be remitted to the UK now or at any time going forward.

This note is only intended to be a broad outline of the HMRC announcement. Individuals should contact their usual Saffron contact for more detailed advice where necessary.